Narrator: Last time on “Bubbles,” we watched as the “Tulipmania” bubble popped and Dutch entrepreneurs who mortgaged their homes to buy a few tulip bulbs lost everything. At the peak, we saw tulip bulbs that were valued at 10,000 guilders—more than a mansion on the Amsterdam Grand Canal!
This week, we’re onto the latest bubble: “Cryptomania.” Many have made millions on bitcoin and other cryptocurrencies—literally from nothing—but now things have started getting really kooky! Check it out, in this week’s episode:
- A hacker named | |2|_||_2 (pronounced “I Rules”) launches his new free game that enslaves 75,000 computers to mine bitcoin for him, making him a cool mil in just a few days.
- An investor borrows $900,000 to rent time on a quantum computer in hopes of hacking his own bitcoin wallet—holding $265 million—after forgetting his own password.
- And a mothballed power plant, running on natural gas, spins back up in order to create a cheap energy supply to mine more bitcoin. Not surprising when bitcoin mining uses up more energy than Finland each year, but absolute bonkers considering we’re deep in a climate crisis!
When will this bubble end? Tune in to find out. [Cue Theme Song and Montage of fools throughout history succumbing to bubbles.]
The Folly of Crypto
Ok, you can probably tell I’m not a fan of cryptocurrencies.1 To me, bitcoin is not only classic bubble behavior (great if you catch it on the upside, not so great if you’re caught without a chair when the music stops) but it’s similar to investing in gold. Indirectly you’re supporting horribly unsustainable behavior all for a metal (or a string of code) that is really only valuable because of a conventional agreement that it’s valuable. And that’s even more the case with bitcoin (as at least there are real functional things you can do with gold, like make electronics or golden toilets).2
My point in bringing this up is to respond to the real story above that a power plant in New York spun back up to provide 44 megawatts of energy “to run 15,300 computer servers” to mine bitcoin, enough electricity “to power more than 35,000 homes,” as the Associated Press reported last week. That is horrifying. I wish it was just a scary story timed to coincide with Halloween (perhaps in a collection: Nightmares for Environmentalists), but it’s not. Worse, as the article reports, this is not the first power plant to come back online in order to do this; others include a waste-to-energy plant in Pennsylvania, and a coal(!) power plant in Montana (and I’m sure there are many more than those).
This is literally worse than making Moai statues with the last trees of an isolated island. At least the statues were thought to preserve the energy of ancestors, which helped improve the harvests.3 Instead, we’re accelerating climate collapse for symbolic wealth that will be worth nothing when collapse destabilizes the global economy.
But I get it. How is speculating in crypto worse than mining coal or gold, or producing (and cultivating desire for) a new series of iPhones every year? It’s just playing the game as it’s currently laid out. But it’s one thing to gamble on whether bitcoin keeps going up with hopes of making money, it’s quite another to resurrect a shuttered fossil fuel power plant to mine it.4 It’s rational within the completely irrational context to trade bitcoin, just as it was rational to trade tulip bulbs. Though again, bitcoin is far less rational than tulips. As the former president of the Dutch Central Bank, Nout Wellink, noted back in 2013, “This is worse than the tulip mania. At least then you got a tulip [at the end], now you get nothing.” I’m sure part of him now wishes he invested anyway, but of course he’ll be right in the long-run.
So, not surprisingly, I find myself, hoping, wishing for this bubble to pop.
And, more so, I find myself wondering: are there ways to help this bubble pop? Perhaps eco-minded hackers could hack bitcoin to reveal its fragility? Certainly the fact that bitcoin wallets could be hacked and the bitcoin within stolen, as quantum computing advances, could reduce trust in this currency. As could the co-option of gamers’ computers for illicit mining, which is already happening. And bitcoin’s being the currency of choice for ransomware attacks certainly shouldn’t improve its reputation. But I think it’ll take far more than that (credit cards and bank accounts are hacked all the time and yet we still use them). Perhaps orchestrated divestment campaigns could encourage instability in the bitcoin market.5 But again, crypto has been volatile from the start, and that hasn’t put a damper on it.
Obviously environmental taxes on every bitcoin mined could do a great deal to rein in this market. If making one bitcoin produces 241 tons of CO2,6 then it should at the very least cost $12,000 to create one (assuming a $51/ton carbon price), which is about a fifth of a bitcoin’s current value. But unless this is a globally agreed on rule, this will probably just shift mining to unregulated countries.
I’m sure there are many other tactics that could be used to make cryptocurrency less attractive as well. At the same time, there should be some positive alternatives to redirect this excitement of alternative currencies toward better ends. Kim Stanley Robinson’s suggestion of creating a Carbon Coin (in The Ministry for the Future)—perhaps using blockchain technology, but with each coin being created when a ton of carbon is verifiably sequestered, not when useless, energy-intensive calculations are solved—that would be a win-win. So if the technology that has captured the crypto-community can be perfected and separated from the speculative and energy-wasting practices it’s built on, that’s great. But currencies like bitcoin, ethereum, and dogecoin, as they now stand, have got to go. Ideally, in a way that doesn’t destroy lives—but with all bubbles, that may be just an effervescent fantasy.
1) Funny story: I remember being at a conference in 2012 when someone told me about bitcoin. I had never heard of it and the guy was a bit strange, so I ignored him. Of course, if I had invested just $1,000 then I would now have about $3.5 million and would be full time focused on building a Gaian movement. Unless of course I had sold it earlier (which I probably would have) trying to cash out before the bubble had busted—like these MIT students who bought sushi with theirs. Would I have been more upset having earned a free $2,000 or $200,000 or would I have always just cursed myself for selling too early? As many have observed, wealth, and focusing on making money, comes with its own troubles….
2) Yes, one could (and should) say the same thing about fiat currencies, but that’s a topic far bigger than this essay can grapple with.
3) Or maybe communicate with the gods? Whatever the reason, it’s better than simply accumulating more money. And that behavior only contributed to the collapse of one island rather than an entire planet.
4) Perhaps even to devote those winnings (not earnings, after all this is just gambling) to philanthropic ends—which I imagine is rare but certainly does happen.
5) Kudos to Greenpeace for saying no, we will not accept donations in bitcoin. But then again, wouldn’t it be better to accept them and then immediately sell the bitcoin, and devote those donations to efforts to regulate, tax, and find other ways to rein in bitcoins?
6) This is the best estimate I could find, but obviously emissions are dependent on energy source. The mining process also burns through computer equipment creating 24,000 tons of e-waste each year (the equivalent of the Netherlands e-waste total). Between electricity costs, equipment costs, income taxes, capital gains taxes, and environmental taxes (including on e-waste), hopefully the value of bitcoin becomes far less worth the hassle, unless of course, you’re getting your electricity free from your local Starbucks.